December 8, 2009

An aside in this week’s Tuesday Morning Quarterback column by Gregg Easterbrook caught me completely by surprise. I had no idea that the US housing market was quite this dysfunctional:

As Part of Tough New Standards for Subsidized Mortgages, Home Buyers Will Be Required to Rub Their Heads and Pat Their Stomachs at the Same Time: The Federal Housing Administration underwrites mortgages for people having problems. Before 2008, the FHA supported about 2 percent of the nation’s mortgages, now the number is nearly at 30 percent, which shows how deep the subprime mortgage issue runs and how much taxpayers now subsidize home ownership. Last week, the FHA said it will toughen lending rules. Borrowers will now be required to put up 3.5 percent of the mortgage as cash or gifts from relatives, and there will be a cross-check against the down payment’s appearing to come as a gift from a charity but actually coming from the seller or builder through a middleman disguised as a charity. A generation ago — a decade ago! — home buyers were expected to have a 20 percent down payment; that made them unlikely to try to buy something they could not afford, and banks wouldn’t be exposed if something went wrong, since they were lending only 80 percent of the value of the property. Now requiring 3.5 percent down is viewed as “toughening” standards. Isn’t this an invitation for yet another cycle of mortgage problems?